UK manufacturing gains speed as services growth slows

Both UK manufacturing and services remain robust, but while survey data showed on Monday that manufacturing output is still expanding, growth in the dominant services sector is slowing.

Although the data pitched the two segments of UK business activity in contrast, analysts said they still expected growth in the second quarter to pick up after a disappointing Q1.

Export growth lifts manufacturers

A quarterly survey compiled by the Engineering Employers' Federation (EEF) showed that exports were up, recruitment in the manufacturing sector was flourishing and companies were upbeat about the prospects for the rest of the year.

Demand from European markets was particularly strong as three-fifths of the companies surveyed reported an upturn in exports to the Continent.

Service sector growth slows

In contrast, UK service sector growth slowed more than expected in May, according to a survey of British purchasing managers by IHS Markit.

Services PMI slowed to 53.8 in May, down from 55.8 in April and lower than the 55 forecast in a poll of economists. A figure above 50 indicates the sector is expanding.

While the survey indicated solid employment growth in Britain's service industries, companies appeared to be turning cautious about the outlook, weighed by concerns over Brexit and weaker household spending.

Consumer-facing companies reported the slowest growth, while the strongest expansions were in financial services and transport and communications.

Forecasts for Q2 remain buoyant

Despite the slowing in services growth, analysts said the data were consistent with expectations of economic acceleration in the second quarter following a disappointing Q1.

Despite falling short of expectations, the survey still points to a rebound in GDP for the second quarter

by Jake Trask, OFX

"Although posing some downside risks, the PMI data suggest that the three months to June should see GDP growth accelerate from the disappointing 0.2% expansion seen in the first quarter," said IHS Markit economist Chris Williamson.

He added: "Our current forecast is for 0.4% GDP growth in the second quarter."

Sterling flat ahead of polls

The pound was little moved against the dollar, staying flat at $1.2891, but was 0.2% higher against the euro at €1.1445.

"Despite falling short of expectations, the survey still points to a rebound in GDP for the second quarter," said Jake Trask, research director at OFX.

He added: "The reaction by sterling was fairly muted as all eyes are firmly on Thursday’s general election."

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